Single-Family Permit Starts Rebounding as Builder Sentiment Rises Above Breakeven Point

March 25th, 2024 by Editor

The latest stats from the National Association of Homebuilders (NAHB) spell good news for door and window dealers. This month the organization reported that in January 2024, the total number of single-family permits issued year to date (YTD) nationwide reached 75,906 — an increase of 43.1% over the January 2023 level of 53,062.

The association reports that single-family permits were up across all four geographic regions in January, with permit increases in the West showing the biggest change, clocking a 67% rise, while the fewest were found in the Northeast, at 19.4%. The South was up by 39.4%, and the Midwest by 36.5%.

For multifamily permits, the regions were split, with the Northeast the Midwest posting increases of 64.5% and 13.6%, respectively, while the South and West saw declines of 32.5% and 27.9%, accordingly.

Forty-four states posted an increase in single-family permits in January 2024 compared to January 2023, according to the NAHB, with Nevada showing the biggest increase (128%) and Mississippi having the least (2.4%) increase. The 10 states issuing the highest number of single-family permits combined accounted for 67.7% of the total single-family permits issued.

The total number of multifamily permits issued nationwide reached 38,870 YTD ending in January. This is 18.9% below the January 2023 level of 47,936.

Twenty-one 21 states recorded growth in multifamily permits in January 2024 compared to January 2023, while 29 states and the District of Columbia recorded a decline. Wyoming had a sharp rise in multifamily permits from nine to 43 (+377.8%), while Alaska had the greatest decline from 54 to zero. The 10 states issuing the highest number of multifamily permits combined accounted for 68.1% of the multifamily permits issued.

Added to those numbers, the NAHB points to a lack of existing homes inventory driving buyers to new home construction, coupled with strong demand and mortgage rates below last fall’s cycle peak helping push builder sentiment above the halfway mark in March.

The NAHB/Wells Fargo Housing Market Index (HMI), released last week, showed builder confidence in the market for newly built single-family reaching 51 in the month of March. That’s the highest reading it has reached—and the first time the number has passed the breakeven point—since July 2023, marking the fourth consecutive monthly gain for the index, according to the organization.

“Buyer demand remains brisk and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year,” said NAHB chairperson Carl Harris, a custom home builder from Wichita, Kansas. “But even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes.”

Mortgage rates have been below 7% since mid-December, per Freddie Mac, which has effectively reduced home prices to boost sales. In March, 24% of builders reported cutting home prices, down from 36% in December 2023, and the lowest share since July 2023. However, NAHB reports that the average price reduction in March held steady at 6% for the ninth straight month while the use of sales incentives is holding firm. The share of builders offering some form of incentive in March was 60%, and this has remained between 58% and 62% since last September.

“With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market,” said NAHB chief economist Robert Dietz. “However, as home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber.”

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